Archive for the ‘Regulation’ Category.

Lesson: Don't Be the Last Merger in an Industry Consolidation

I was reading about the DOJ push back on the proposed American-US Airways merger.  It strikes me that you never want to be the last merger in an industry consolidation.  When the consolidation begins, say with 8 players, a merger -- even if it results in a very big company -- reduces the number of competitors from 8 to 7.  After a while, though, the later mergers are proposing to reduce the players from, say, 4 to 3.  This will look worse to the DOJ, who by this point in a consolidation may be feeling remorseful, in retrospect, that it let some of the earlier deals go unchallenged.  So the last deal gets to catch up / payback from the earlier deals.

I think this is in part what is happening with the American merger.  I don't have the data, but my sense is that earlier mergers (e.g. United and Continental) were far more problematic from an anti-trust standpoint.

Disclosure:  living in Phoenix, whose US Airways hub will likely get downsized or eliminated in the merger, my life will be worse likely if the merger is approved.   Executives swear Phoenix will remain a major hub but most residents here consider this a "If you like your hub you can keep it" type promise.

This Minimum Wage Conversation is Not a Hypothetical -- I Have It All The Time

Don Boudreax writes:

Here’s a project for all unemployed young people – say, ages 18 through 21 – in America today.  Go to a nearby supermarket or restaurant or lawn-care company or pet store and ask for a job at the minimum wage.  If you are denied, offer to work for $4.00 per hour.  The owner or manager will almost surely decline, saying that it’s against the law.

“Would you like to hire me at $4.00?” you ask.

“Well yes I would” is the answer you’re likely to get in reply.

“So, hire me at that wage.  I’m an adult, I’m sober, and I have no mental issues.  I’m willing to work for $4.00 per hour.”

“You don’t get it, kid.  I can’t hire you at that wage.  I’ll get fined, or worse.  Go away.”

“Ok, I’ll leave.  But no one – including you – will hire me at $7.25 per hour.  What am I supposed to do?”

“Look kid.  That’s your problem.  I’m sorry.  I don’t make the laws, but I gotta follow them.  Go away now.”

I know that this is a realistic scenario because I have this conversation with employees all the time.  Except in my case, applicants are generally not 18 years old but 70 years old.

A bit of background:  My company operates campground and other recreation areas mainly using retired people who live on-site in their own RV's.  Few of my 400+ employees are under 65 and several are over 90.

There are several reasons this conversation occurs:

  • As my employees get older, and perhaps sicker with various disabilities, their work slows down to the point that it falls under our productivity expectations.  Employees may come to me saying they want to stay busy but they know they don't work very fast but they would be happy to work for $5 or $4 an hour if they could just keep this job they love.  (There is a Federal law that allows waiving of minimum wages for disability situations.  We tried it -- once.  The paperwork was daunting and the approval came 7 months after the application -- 2 months after the seasonal employee had already gone home for the year).
  • Many people like to stay busy but face wage caps where they begin to lose their Social Security.  They want to keep their total income under the wage cap.  We try to create some jobs that require fewer hours so they can get their wages down that way, but in many cases we have a limited number of on-site living spots and a fixed amount of work such that each person occupying a living spot must do a certain amount of work to make sure it all gets done.  So at some point we can't give them fewer hours, and then they will ask for lower pay.

I frequently have to tell people I simply cannot pay them less.  They ask if they can sign a paper saying they want to be paid less, and I tell them something like "no, the law assumes you are a gullible rube and that I am evil and infinitely powerful so that if you sign a paper, it just means I forced you to do it."  Which is all true, that is exactly the logic of the law.

People look at me funny sometimes when I say the minimum wage law limits employee rights by putting a floor on what they may charge for their labor.  This is an odd way of putting it for them, because minimum wage laws are generally explained in the oppressor-oppressed model, but it makes perfect sense from my experience.

IRS Argues Your Tax Return is Just Like a Dead Horse

Normally this would be a good Friday story, but you can't always control when Washington is going to bring the crazy.

The Obama administration on Tuesday defended its effort to regulate the tax return preparation business for the first time in U.S. history, basing its case largely on a 19th century law dealing with horses lost or killed in the Civil War....

[the Obama Administration attorney] explained that the administration sees the "Horse Act of 1884" as providing ample authority for the U.S. Internal Revenue Service to regulate the tens of thousands of preparers who fill out millions of Americans' federal tax returns.

Here is the logic, such that it is

A post-war industry emerged of agents who would press war loss claims for a fee, usually a percentage of the claim collected. Soon, claim values were being fraudulently inflated.

In response, the government started regulating these intermediaries, barring unscrupulous ones and certifying honest ones as "enrolled agents," a title that is still used today by people who represent clients in matters before the IRS.

The IRS is arguing that tax return preparers represent their customers in much the same way that enrolled agents do, so the agency should be able to expand regulation to include preparers.

Note that tax preparers are not actually IRS enrolled agents, they just argue they are kind of sort of like them (in that they both deal with tax returns, I suppose).  But enrolled agents explicitly act as an intermediary between citizens and the government in disputes and claims.  This is not the role of tax preparers.  They merely charge a fee to fill out time-consuming and confusion paperwork.  My tax accountant has never once had any conversations with the IRS on my behalf, nor should he.  I would engage an attorney for that.

Good God, How Does This Help Anyone Except Perhaps Helping Government Officials Feel Powerful

Via Reason

A Paris appeals court this week ordered the French cosmetics chain Sephora to close its flagship boutique on the iconic Champs Élysées boulevard at 9pm, angering salespeople who say they have freely accepted to work until midnight for years and now risk losing their jobs.

Following a trend among other businesses on Paris's most celebrated street, Sephora began extending its opening hours in 1996. Its designer perfumes, makeup and other cosmetics were, until this week, sold until midnight between Monday and Thursday, and as late as 1am on Friday and Saturday.

Citing labour laws that restrict night-time work, France’s largest unions collectively sued the shop. An administrative court sided with Sephora on December 6, 2012, allowing the cosmetics giant to keep its exceptionally late hours on the Champs-Élysées.

However, the appeals court overturned that decision on Sunday, agreeing with unions that the store’s “normal activity” does not “make night-time work a necessarity,” as the law states.

The Inevitable Result of Government Policy on the Labor Market

Assume the following conditions:

  1. I am increasingly liable for any dumbass thing my employees say or do.  It does not matter if it is absolutely against my values and company rules, if someone, say, uses a racial epithet with a customer or another employee, I will likely at least get sued.  Given my deductibles on insurance, I am out $20,000 a case even if I win.
  2. Minimum wages have increased faster than the production value of unskilled, inexperienced laborers.
  3. Obamacare is raising the minimum cost of a full-time employee by at least $2,000-$3,000 a year, not including the as-yet-to-be-define but likely expensive record-keeping and administrative requirements 
  4. In states like California, the law increasingly gives employees the ability to make new claims on my income (e.g. fake workers comp and disability claims) or to even make themselves un-firable (by asking for a family medical leave, or claiming a disability, or claiming to be a whistle-blower).

Against this backdrop, what am I going to do?  I am going to hire more skilled and experienced workers who justify my minimum employment costs.   I am going to hire mature people less likely to get me in trouble via their immature actions.  I am going to hire people with a long work history so I can see there is not a history of scams and fraud.

In other words, I am going to hire older people.  And thus:

click to enlarge

 

Of all the issues I raised above, the first one gets the least attention but in our customer contact business is perhaps the most important.  The cost of hiring a knucklehead is immense.  And the folks that do stupid stuff in 1 are often the very same people who try to take us in 4.

Regulatory Suffocation

Taxes are usually the heart of the discussion when people talk about the bad business climate in California.  And certainly their taxes are just insanely high.  But for folks like me, an even bigger barrier is the regulatory environment. We are closing several operations in California at the end of this year mainly because we are just exhausted with the compliance costs and regulatory barriers to expansion.    In Ventura County, for example, we have  a camping operation that has never made money because it is under-scale. We have the capital and desire to expand it, but it has just proven impossible to do so.

A big reason for this is the regulation in California and in Ventura County.    We once had to get something like 7 permits just to remove a dangerous and dilapidated deck.  We added a 500 gallon fuel tank for fueling boats (to eliminate the unsafe practice of driving in and out of town with about 100 5-gallon fuel containers) and it took over 3-years of trekking to multiple county and state offices to get it permitted.  We thus despaired of trying to get a campground expansion approved.   Approximately the same expansion that cost us just under a million dollars in Alabama several years ago was going to cost over $5 million and Ventura County, and the County was still piling on requirements when we gave up.  And this is even before we fart with crazy California break laws and other nuttiness.

I have often told folks that I would love to see a liberal defender of all this regulatory overreach try to construct and open a restaurant in Ventura County.  It would be fascinating to watch.   (All this musing was touched off by this article on underground restaurants that try to sidestep this regulatory cost and mess).  We are a service business and California still has a lot of money, so we still operate in California.  But I continue to wonder why any company, like a manufacturer, remains in California.  Sell there yes, but produce anything you can out of state and ship it in.  Even as a service business we do a bit of this, no longer stick-building anything but having all our buildings, cabins, stores, etc built in Arizona as modular buildings and then shipped to California.  Even our labor force is partially "imported", as we hire folks who live in their RV's to come from all over the country to live and work at our campgrounds.

As I read the other day, if Silicon Valley were not already in California, would anyone in their right mind put it there?

Postscript:  One other story:  California's regulatory environment has caused a real shift in the culture as well.  At one location that we are closing this year, a local attorney has regular dinner meetings with groups of our employees to brainstorm among the group to see if they can come up with something to sue us over.

The End of Full-Time Work in the US Retail Service Sector

Frequent readers will know that I have been predicting for over a year that the economic story of 2013 would be the end of full time work in the retail service sector due to the PPACA, or Obamacare (example).   QED, from the most recent economic report:

In June, the household survey reported that part-time jobs soared by 360,000 to 28,059,000 – an all time record high. Full time jobs? Down 240,000.  And looking back at the entire year, so far in 2013, just 130K Full-Time Jobs have been added, offset by a whopping 557K Part-Time jobs.

It is unclear how the 1-year delay in the employer mandate implementation will affect this.  Probably not a lot -- based on the way Obamacare was being implemented, companies needed to be switching workers to part-time now (really, early this year) so that they would qualify as part-time for next year  (a company needed 6-12 months of records from this year to prove the employee was part-time).  In other words, most companies have already switched, and having done so, will not likely switch back just for one year.

Besides, as I have written before, it is actually cheaper and easier for many retail establishments to stitch together full coverage of their business hours from part-time workers.   Making jobs full-time is a hassle, and was done by most of us mainly for competition reasons, ie to be able to attract the best employees.  Other laws like California's absurd lunch-break mandate (which has caused me to make working through lunch a firing offense at our company) just add to the cost of offering full-time work.   If everyone is only offering part-time, and the labor market is weak with plenty of workers available, there is no reason to go back to offering full time employment.

Obamacare Mandates Delayed -- And That Other Shoe

Well, it certainly comes as happy news to this correspondent that the Administration announced this week it will delay health insurance mandates on businesses.  Our company has spent a ton of time since last November trying to minimize the expected cost of the mandates -- the initial cost estimates of which for our business came in at three times our annual net income.  Our preparation has been hampered by the fact that the IRS still has not finalized rules for how these mandates will be applied to a seasonal work force.  Like many retail service businesses, we have studied a number of models for converting most of our work force to part time, thus making the mandates irrelevant for us.

I know this last statement has earned me a fair share of crap in the comments section as a heartless capitalist swine, but the vitriol is just absurd.   Many of the folks criticizing me can't or don't want to imagine themselves running a business, so let's say you have an annual salary of $40,000.  Now, on top of all your other expenses, the government just mandated that you have to pay an extra $120,000 a year for something.  That is the situation my business is in.  Are you just going to sit there and allow your savings to become a smoking hole in the ground, or are you going to do something to avoid it?  Unlike the government, I cannot run a permanent deficit and I cannot create new revenues by fiat.  Congress allowed business owners a legal way to avoid the health insurance mandate, and I am going to grab that option rather than be bankrupted.  So are every other service business I know of, which is why I have predicted that full-time jobs are on the verge of disappearing in the retail service sector.

Anyway, it appears that the IRS and the Administration could not get their act together fast enough to make this happen.  Not a surprise, I suppose.  You and I have both been in committee meetings, and have seen groups devolve into arguments aver useless minutia.  This is not a monopoly of the government, it happens in the private sector as well.  But in the private sector, in good companies, a leader steps in and says "I have heard enough, it is going to be done X way, now go do it."  In government, the incentives work against leaders cutting through the Gordian knot in this way, so the muddle can carry on forever.

There are at least two more shoes that are going to drop, one bad, one good:

  1. On the bad side, while companies like mine complain about the cost of the PPACA, they are going to freak when they see the paperwork.  My sense is that we are going to be required to know in great detail what kind of health insurance policy every one of our employees have, even if it was not obtained through our company, and will have to report that regularly to the government.  In addition, there are gong to be new reporting requirements to new agencies for wages and hours.  It is going to be a big mess, and my uneducated guess is that someone in the last week or so looked at that mess and decided to hold off announcing it.

    But readers can expect a Coyote freak out whenever it is announced, because it is going to be bad.  Wal-mart will be fine, it has the money to build systems to do that stuff, but companies like mine with 500 employees but only 2 staff people are going to get slammed.  There is a reason government agencies, even government schools, have more staff than line personnel -- they live and breath and think in terms of complex reporting and paperwork.  They love it because for many it is their job security.  Swimming every day in that water, it is no surprise they impose it without thought on the private sector.  This makes it hard for companies like ours that try to have 99% of our employees actually serving customers rather than pushing paper.

  2. The individual mandate is toast for next year.  No way it happens.  If the Administration cannot get the corporate piece done on time, there is no way in hell it is going to get the exchanges up and running.  And even if they do, some prominent states with political influence with this President, like Illinois and California, likely will not get their exchanges done in time and will beg for a delay.

That's OK, I Am Sure They Are Gaining All the Business Skills They Need in Their Ecuadoran Gender Studies Class

Our government's plan to make sure that all young people are unemployed and have no ability to develop vital job skills continues to proceed:

Unpaid internships have long been a path of opportunity for students and recent grads looking to get a foot in the door in the entertainment, publishing and other prominent industries, even if it takes a generous subsidy from Mom and Dad. But those days of working for free could be numbered after a federal judge in New York ruled this week that Fox Searchlight Pictures violated minimum wage and overtime laws by not paying interns who worked on production of the 2010 movie "Black Swan."

A few thoughts:

  • It has always amazed me that Progressives, who are the most likely to argue that money isn't everything, simply insist on ignoring non-monetary benefits of jobs.  Jobs offer money, yes, but can also teach vital skills and benefits which can dwarf the monetary component for some.   The skills taught in an internship can be sophisticated -- e.g. how to produce a radio broadcast -- or prosaic -- e.g. how to show up on time and work with others, but they have real value to young people.  I know there are jobs my 19-year-old would take for free to gain experience and/or break into a particular industry.   Jobs can also offer people of all ages intellectual or physical challenges.  I have many people in the 70's who work for me merely to stay active, meet new people, and enjoy the outdoors.
  • There will still be one place to still get unpaid internships -- Congress, since they exempt themselves from these laws.
  • I am always simply amazed at people who accept an employment deal -- in this case exchanging their labor for experience but no money -- and then go to court because the deal was, err, exactly what they were led to expect.  This reminds me of people who buy a home next to the airport because it is cheap and then sue over the noise.

The Next Step in Regulation Madness

So, what is the next danger to the Republic that requires coercive government control to protect us all from disaster?  Pedicabs:

Operating a pedicab used to be cheap and easy. A person could make a buck with little or no overhead and without restrictive, burdensome regulations.

That’s no longer true in some Valley cities that have approved ordinances limiting who can operate pedicabs on their streets. Scottsdale is the latest to tighten its rules, joining Phoenix and Glendale. No other Valley municipality regulates pedicabs.

To continue doing business in Scottsdale, pedicab operators must have a valid Arizona driver’s license, maintain insurance and adhere to regulations pertaining to the safety and visibility of the pedicab. The ordinance, which became law on May 9, includes penalties for non-compliance but does not specify any inspections.

Phoenix’s ordinance, which went into effect in August 2008, was in response to concerns and complaints from downtown stakeholders and patrons regarding pedicab activity, city spokeswoman Sina Matthes said. The ordinance is stricter than Scottsdale’s, requiring Police Department inspections and inspection tags.

Glendale’s ordinance, which became law in late 2007, requires a city-issued license and limits the hours of operation and what roads can be used by operators, said Sgt. Jay O’Neill of the Glendale Police Department.

Why the regulation.  What safety disaster led to this?  Well, apparently some poor pedicab operator allowed himself to be hit by a drunk driver.

Scottsdale’s ordinance was prompted by a Jan. 4 crash involving a suspected drunken driver and a pedicab trailer on Scottsdale Road near Rose Lane. The two pedicab passengers suffered serious head and spine injuries.

Scottsdale police determined that there were no mechanical or safety violations.

Here is some government cluelessness:  it is OK if we rape you as long as we ask for your feedback first

In Scottsdale, operators must maintain at all times a commercial general-liability insurance policy of at least $1 million per occurrence and $2 million annual aggregate.

Jay Ewing Jr., owner and operator of Big Papa Human Powered Transportation, said four people have asked him if he wanted to purchase their equipment because they are going out of business in connection with the Scottsdale regulations. He says a pedicab operator can expect to pay at least $250 a month for insurance....

Scottsdale police Cmdr. Jeff Walther said the transition has gone smoothly because all operators were made aware of the proposed changes and were given the opportunity to provide input before the regulations were approved by the council.

“I was surprised, my folks were surprised, that almost immediately there seemed to be a pretty dramatic decline in operators,” Walther said.

Cable Unbundling Will Reduce Niche Channel Choices

I wish I could remember where I read this to give proper credit, but it is funny that the folks who are absolutely bending over backwards to bundle health care want to unbundle cable TV.  Think about it -- the person who just wants MSNBC but has to buy the whole cable package to get it is getting hosed far less badly than the young person next year who needs no medical care but will have to buy a pre-paid medical plan designed for a 65-year-old.

But I believe that cable unbundling will achieve the opposite effect from what most people expect.  And the key to my analysis rests, as do all important economic issues, on the difference between average and at the margin.  This is a repost from 2007

[A la Carte cable pricing] will reduce the number of interesting niche choices on cable.

For some reason, it is terribly hard to convince people of this.  In fact, supporters of this regulation argue just the opposite.  They argue that this is a better plan for folks who only are passionate about, say, the kite-flying channel, because they only have to pay for the channel they want rather than all of basic cable to get this one station.   This is a fine theory, but it only works if the kite-flying channel still exists in the new regulatory regime.  Let me explain.

Clearly the kite-flying channel serves a niche market.  Not that many people are going to be interested enough in kite flying alone to pay $5 a month for it.  But despite this niche status, it may well make sense for the cable companies to add it to their basic package.  Remember that the basic package already attracts the heart of the market.  Between CNN and ESPN and the Discovery Channel and the History Channel, etc., the majority of the market already sees enough value in the package to sign on.

Let's say the cable company wants to add a channel to their basic package, and they have two choices.  They have a sports channel they could add (let's say there are already 5 other sports channels in the package) or they can add the Kite-flying channel.  Far more people are likely to watch the sports channel than the kite flying channel.  But in the current pricing regime, this is not necessarily what matters to the cable company.  Their concern is to get more people to sign up for the cable TV.  And it may be that everyone who could possibly be attracted to sports is already a subscriber, and a sixth sports channel would not attract any new subscribers.  It is entirely possible that a niche channel like the kite-flying channel will actually bring more incremental subscribers to the basic package than another sports channel, and thus be a more attractive addition to the basic package for the cable company.

But now let's look at the situation if a la carte pricing was required.  In this situation, individual channels don't support the package, but must stand on their own and earn revenue.  The cable company's decision-making on adding an extra channel is going to be very different in this world.  In this scenario, they are going to compare the new sports channel with the Kite-flying channel based on how many people will sign up and pay for that standalone channel.  And in this case, a sixth (and probably seventh and eighth and ninth) sports channel is going to look better to them than the Kite-flying channel.   Niche channels that were added to bring greater reach to their basic cable package are going to be dropped in favor of more of what appeals to the majority.

I think about this all the time when I scan the dial on Sirius radio, which sells its services as one package rather than a la carte.  There are several stations that I always wonder, "does anyone listen to that?"  But Sirius doesn't need another channel for the majority out at #300 -- they need channels that will bring new niche audiences to the package.  So an Egyptian reggae channel may be more valuable as the 301st offering than a 20th sports channel.  This is what we may very likely be giving up if we continue down this road of regulating away cable package pricing.  Yeah, in a la carte pricing people who want just the kite-flying channel will pay less for it, but will it still be available?

Note the key to this analysis is the limited channel capacity of cable or satellite.  This is not a pure free market, where there is always room for another niche offering to try their hand with consumers.   Cable channels are more like products competing for limited floor space at Costco - to make the cut in an a la carte world, a channel has to do a lot of business.

Well, At Least TMZ Will Be OK

Via Walter Olson

Can websites be forced to change to accommodate the disabled — by using “simpler language” to appeal to the “intellectually disabled or by making them accessible to the blind and deaf at considerable expense?

Apparently, the White House is gearing up to force costly changes on websites in the name of ADA compliance.   The implications could be staggering, and in certain scenarios would basically force me to certainly close down this site, and likely close down many of my business sites.

Generally, the First Amendment gives you the right to choose who to talk to and how, without government interference. There is no obligation to make your message accessible to the whole world, and the government can’t force you to make your speech accessible to everyone, much less appealing to them. The government couldn’t require you to give speeches in English rather than Spanish …

But now, the Obama administration appears to be planning to use the Americans with Disabilities Act (ADA) to force many web sites to either accommodate the disabled, or shut down.

Update on the Economic Story of 2013

Yes, more evidence that the PPACA is ending full-time work in the American retail service sector

Circle K Southeast joined a growing list of national companies shifting workers to part-time status this week, in order to avoid paying Obamacare’s mandatory benefits, CBS-WTOC reports.

The alternative is to pay a $2,000 fine per fulltime worker who is not covered, leading Circle K to become the latest in a long line of companies to slice employee hours to avoid increased costs.

Here was my article several weeks ago in Forbes, though I have been predicting this since last year (when my own company started planning for the same change).

Why Some Products Suck

This came to me via a reader.  Apparently, after working to make sure that toilets, shower heads, and washing machines no longer work as well as they used to, government regulators have ruined the gas can.  I still (thankfully) use my old plastic can that is about 20 years old, but apparently two changes have been mandated

  • There is a self-closing mechanism at the end of the spout that work fine in modern cars designed for this technology but don't work at all in lawnmowers and boats.   By my own observation, most gas cans are used to fill machinery other than cars.
  • There is no vent.   Yes, there is no way to let air smoothly into the can as gas is poured out, meaning for gas to pour at all air must come in through the spout.  This results in slow and erratic flow rates.

Users report that they are spilling far more with the new design than the old.

Readers may remember my showerhead hacking.  Though I had not heard of the new gas cans, several of my employees had.  It turns out that to run a business, there is no way you want your folks filling a boat motor with one of these new cans, it takes forever.  Fortunately my folks have already figured out how to hack the cans.  It is easy to drill and tap a hole in the soft plastic, and insert a screw plug.  Then, this plug can be removed to vent.  Of course this is less safe than the old cans with a simple, non-removable snap on plug cover -- it is easy for someone to forget to plug the vent.

Licensing is Anti-Consumer

From a reader, comes this story of St. Louis so far refusing to grant a license to a woman who wants to operate a clothing sales truck (in a parallel to the growing food truck business).  What is the official explanation for denying her a license?  These government folks are refreshingly honest, not even bothering with the BS about consumer protection and jumping right to the real reason - incumbent businesses don't want new forms of competition.

NewsChannel 5 received this written explanation from Maggie Crane, the communications director for Mayor Francis Slay:

"We like the idea of fashion trucks a lot, but we still need to find out if there is a way to license mobile boutiques that does not put brick and mortar stores, who have already made substantial investments in their neighborhoods, at a disadvantage. We will also need to identify neighborhoods that will welcome them.

"We went through that process with food trucks a few years ago. Food trucks, for example, must abide by an enforceable set of rules outlining everything from safety regulations to where and for how long they can park.

"Our prediction is that the region's first legal fashion trucks will be here in the City. But, for now, they are pirates."

Note by this same logic Amazon should have been banned by St. Louis, as certainly bookstores in St. Louis had made substantial investments in their neighborhoods.  In fact, one of my favorite book stores used to be in Clayton, near St. Louis, though I fear it has died  (anyone know, I can't remember the name, was a large independent).  In fact, that is an advantage of the Internet I had never considered -- it allows new businesses to challenge old ones without harassment by local licensing and zoning authorities.

Re-Inflating the Bubble

We all know from progressive and Democratic writers the the Community Reinvestment Act and other efforts to offer cheap home loans to people without good credit had nothing to do with the mortgage industry offering too many loans to people without good credit.

So we should not be in the least bit worried that the Obama Administration is calling for more mortgages to be given to people with weaker credit, while sub-prime auto loans are simply booming.  Because we have learned from Iceland and Greece and Cyprus that the best way to deal with a debt crisis is by encouraging consumers to take on more debt, and the best way to respond to an asset bubble is to try to re inflate the bubble.

All of this, of course, is simply crazy talk.  The people who are involved HAVE to know this won't end well, because the most recent example of this leading to disaster is only 4 years old.  Hell, the people doing this were in office when this same approach fell apart last time.  But politicians refuse to face some pain now to avoid huge pain in the future - for politicians, the discount rate on pain is infinite.

The Biggest Economic Story of 2013

Frequent readers will know that last year, I declared that the end of full-time employment in the American service industry (due to Obamacare) would be the biggest economic story of 2013.  The mainstream media either has not yet noticed or cannot be bothered with a story that does not put Obama in the best possible light, but the story is starting to get out none-the-less.

Expect a lot more of this.  The service industry generally does not operate 8 hours a day, 5 days a week anyway, so its labor needs do not match traditional full-time shifts.  Those of us who run service companies already have to piece together multiple employees and shifts to cover our operating hours.  In this environment, there is no reason one can't stitch together employees making 29 hours a week (that don't have to be given expensive health care policies) nearly as easily as one can stitch together 40 hours a week employees.   In fact, it can be easier -- a store that needs to cover 10AM to 9PM can cover with two 5.5 hour a day employees.   If they work 5 days a week, that is 27.5 hours a week, safely part-time.  Three people working such hours with staggered days off can cover the store's hours for 7 days.

Based on the numbers above, a store might prefer to only have <30 hour shifts, but may provide full-time 40 hours work because good employees expect it and other employers are offering it.  But if everyone in the service business stops offering full-time work, there will be no reason not to go to such a plan, and thousands of dollars per employee to do so.

Another California Coastal Commission Horror Story

This is a guest post from Gregg Stevens.  His story resonates with me in particular because he is in the same business as I am, running campgrounds.  The story begins with the proverbial tree falling in the forest.  

I used to think there wasn’t much a hole in the ground could do. The hole could get bigger, or it could get smaller. And that’s about it. But I’ve recently learned that a hole in the ground can not only suck an enormous amount of money, time and energy from a fellow, it can drive him to the edge of madness as well.

I run a small campground on a river in northern California, and one winter day a big old fir tree blew over into the water. It’s fairly common for trees to fall here on the heavily wooded, storm-battered Mendocino Coast. But this particular tree was a bit different than most. For it fell under the benevolent gaze of the California Coastal Commission.

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Health Insurance NOT the Same As Access to Health Care

Most of the Left wants to measure access to health care by the percentage of people who have health insurance, implying that those without insurance have no access to care.  But in fact the uninsured in the US have access to better health care than most other people in the world.

And it will soon become apparent that the converse is not true either - even with insurance, in a top-down rules-driven government-controlled health care system, one may not have access to health care.    For example, one of my employees was complaining that she was having trouble with workers comp getting care for her injury.  This is a follow-up email I received today from my insurance agent (redacted only for privacy issues):

I talked to [valued employee of my company, call her Jane] this morning regarding her lack of attention from [our workers comp insurer].

I then followed up immediately with [representative of workers comp insurer] working on her account, in Sacramento, CA.

It seems the problem is her injury occurred in CA and she's now in MO.  The doctors in MO don't want to see her due to the paperwork and issues required under the CA laws. 

Jane advises she gets relief from going to a chiropractor.  I told her to keep going and I would get [insurance company] to approve those visits, which [workers comp insurer rep] said she would.

So, it comes down to [our insurance company] trying to find an Orthopedic Doctor who will take her and comply with the CA requirements, which the Drs. don't like.

There is no issues on coverage, it's a political issue.

Already, Medicare and Medicaid patients have trouble finding doctors to treat them.  Enjoy the cozy feeling of being "insured" via Obamacare.  Let's hope that when you are sick, there is a doctor who will see you.

California Regulatory Burden

I often tell folks that while the taxes in California are irritating, what has really killed my interest in expanding in California is the regulatory burden.  It took 3 years to get through Ventura County planning department to get permission to put a modular ticket booth in a corner of an existing parking lot -- only to be denied.  I have faced potential prosecution because we demolished an unsafe deck without state permission.  I now have to fire people who try to work through lunch or else face employees suing  me (successfully!) later for their voluntarily working through lunch.

I think that is why I enjoyed this blog, SLO Leaks, so much.  It is a 3-1/2 year story of an obviously wealthy gentleman trying to get the local planning board and later the California Coastal Commission to allow him to build a house on his residential-zoned land.  I sat up for hours last night reading through it.  42 months and $3 million later, he still is not even close to having his approvals.  It is interesting to see his respectful-of-authority tone shifting over time, until at the end he is writing about how he has shifted his company's new office and expansion from California to Texas.

Here are a few nuggets.   Here is what he is up against:

Once a year the Public Works Dept gives a report on what has happened in the previous year in the Avila Beach area. One part of their report is on how many building permits were issued. In order to get a building permit you first have to get a minor use permit through the Planning Dept, so this is a good gauge of how much work the Planning Dept does. So for the period from July 1, 2010 to June 30, 2011, in the Avila area, which has Ryan Hostetter as a full time planner, the entire list of building permit issued is here:

One single family residential permit was issued during the entire year.

That’s it. No commercial buildings, no office building, no barns, just one single family house permit. And it wasn’t my permit, that’s for sure – because I am now going through the potentially years long Coastal Commission permit appeal process before I can even apply for a building permit.

And this:

So after waiting nearly a year, Daniel Robinson, who is a low level bureaucrat with the California Coastal Commission, and who had never even been to the house site, and who had never even met me or my wife, has told me that he doesn’t like my front yard, he thinks the retaining walls are too big, he thinks my house is too big, and that he doesn’t like the overall design of my house. Daniel thinks that my house should look more like a farm house, and also that people walking around in the city of Pismo Beach will be offended by the mere sight of my house (so called “visual impact”). And if my house design doesn’t please him then he will recommend to the full Coastal Commission that they deny my permits. Since I will only get 3 minutes to defend my house in front of the Coastal Commission I would then probably lose that permit appeal vote and I will be unable to build my house at all, and I will lose about $3 million, and will have wasted years of my life.

The California Coastal Commission is perhaps the most capricious and authoritarian government entity in the country, for example:

But then there was the minor issue of a permit for Daly City, a suburb of San Francisco, to rebuild a rock retaining wall that had been damaged during the last winter storms. It was such a minor issue that Daley City didn’t even send a representative to the CCC meeting. What could possibly go wrong?

The rock retaining wall was to protect a dirt and gravel road that follows along the coastline. On the other side of the dirt road is an abandoned landfill that Daley City capped over in the 1970′s. And I watched the Coastal Commission, apparently on a whim, decide to overrule their staff and instead of issuing a permit they decided to require Daily City to dig up the entire landfill and relocate it inland somewhere. Where it got relocated to the Coastal Commission didn’t care – since that isn’t their problem. And the estimate to do this landfill relocation is $125,000,000.00!

$125,000,000.00 works out to $1250.00 for every man, woman, and child in Daly City. And the Coastal Commission decided that this must happen with about 10 minutes of discussion amongst themselves and without a single fact to cloud their minds! It was both unbelievable and terrifying.

From all the facts, it looks to me like he is never going to get approved.  But you can get quick approval from the  CCC -- if you are rich and have political juice

Like me, [Steve Blank] is in the high tech industry. Like me, he has started several high tech companies....

After Steve sold his last startup company he applied for a permit to build a house in the California Coastal Zone in 2000. And, just like me, Steve’s land use permit was appealed to the California Coastal Commission. The reason for the appeal was “sensitive habitat” issues. (I don’t have any sensitive habitat issues because my proposed house is in the middle of a field of non-native weeds.)

Unlike me, Steve’s appeal to the Coastal Commission went pretty smoothly. He had his hearing in only 8 months – start to finish. It has taken me a year and a half, after waiting a year and a half for SLO County to issue the permit in the first place. And there were no onerous “Special Conditions” imposed on Steve by either San Mateo County or the Coastal Commission.

Here is the list of “Special Conditions” that the Coastal staff wants to impose on me.

Superficially Steve’s house and my house are similar. I have a main house and a barn on 37 acres, Steve has a main house, two barns, and a farm labor house. But Steve’s house is 15,780 sq. ft., with a swimming pool, and a 2,500 sq. ft. barn, and another 3,040 sq. ft. barn 31 ft. high, and a 1240 sq. ft. farm labor house all on 261 acres. So Steve’s house is around 3 times larger than my proposed house (and much taller). Steve also got to have a fence and there was no requirement for public access. And Steve was able to build his house to look anyway he wanted. No “rural agricultural theme” architecture for Steve, that’s for sure. Steve can also plant in his yard pretty much any damn thing he wants.

Steve is pretty proud of his house. A picture of his house is the banner to his web page, which ishere. You can see the front gate of his house here. And this is an overhead view.

Steve Blank is one of the current California Coastal Commissioners.

Republican Branding

Someone from the National Council of Mayors or Cities or some such group called me wanting to meet.  I asked him what he wanted.  Blah blah blah.  I asked him after a bunch of doublespeak about learning about how my great business operates what he really wanted.  He said he wanted to share with me Federal and State and City programs to help my business.  The conversation then went approximately this way:

Me:  I don't want any of that stuff.  I don't want other people to be forced to pay for my business

Caller:  So you are a Republican?

I would love it if Republican's narrowly branded themselves as folks who don't take money by force from others.  I would call myself one.  But unfortunately Republicans and Chamber of Commerce type CEO's who nominally call themselves Republicans wallow all the time in such corporate cronyism.

Further, Republicans spend a lot of time on social crusades that drive me crazy.  The other day at a party, I was talking to a number of entrepreneurs who all should have found a natural home in the Republican party given their economic views.  But they were all Democrats, most of them for the simple reason that they did not want to be associated with Republican social crusades.  I talked to a guy for hours who despised Obamacare but voted for Obama twice because he did not want to be associated, for example, with Republican's anti-gay position (e.g. Rick Perry).

Of course, this is a double edged sword.  There are likely many Republican voters who are fiscally liberal but vote Republican for its commitment to opposing gay marriage and abortion and the like.

PS-  The call actually went on for a while.  He asked me what he could help me with.  What is my number one problem?  I told him, honestly, we have put everything else on hold, all our growth plans have been frozen, until we figure out how to minimize the costs of the PPACA on us.   This was not something he seemed to want to discuss.

Death of Another Cartel

A group of employers agree not to compete with each other on job offer timing, basically by making all students wait until a certain date to find out if they have a job.  Students, who for a variety of reasons may value an early decision / clarity on their job plans are denied this opportunity by the cartel.  Who is this?

Well, it could be the NBA, which operates this way, because historically Congress and the courts have cut sports leagues slack on such anti-trust issues.  But in this case we are referring to an agreement among Federal judges to restrain competition for law clerks.

As with most all cartels that are not backed up by force of law, the cartel has broken up because there was too much incentive to "cheat".  Which is exactly why anti-trust laws are not required, because such cartels always go kaput in a free market.  In fact, the only stable cartels in the US have tended to be those that are backed by the force of law and guns.

Media Starts To Discover Part-Time Fiasco

Last year I said that the biggest economic story of 2013 would be the conversion of the American service worker to part-time from full-time in order to manage the new costs imposed by the PPACA.  This has already been going on in restaurants and hotels for months, but no one seems to notice.  Ironically, it is only starting to become news when it hits university professors.

Oil Drilling (or Lack Thereof) on Federal Lands

Via Mark Perry.  This issue came up in the debates, when Obama claimed that he tried to take credit for the recent oil and gas boom, when in fact all of the boom is occuring on public lands (oil and gas production on federal lands is actually falling during this boom).  Here is one reason whyL

Anti-Trust Law and the Corporate State

Kevin Drum is uncomfortable that Google got off the hook on anti-trust charges merely because it was not harming consumers

Google made a number of arguments in its own defense, and consumer welfare was only one of them. Still, it was almost certainly the main reason they won, and it's still not clear to me that this is really what's best for consumers in the long run. Did Google users click on the products they highlighted? Sure. Did they buy some of the stuff? Sure. Were they happy with their purchases? Sure. Is that, ipso facto, evidence that there's no long-run harm from a single company dominating the entire search space? I doubt it. After all, John D. Rockefeller could have argued that consumers bought his oil and were pretty happy with it, so what was the harm in his controlling the entire market?

The tech industry moves fast enough that antitrust might genuinely not be a big issue there. In the end, it wasn't antitrust that hurt IBM and Microsoft. It was the fact that the industry moved rapidly toward smaller computers and then the internet, and neither company was really able to react fast enough to dominate these new spaces. Nonetheless, I'm skeptical of the tautology at the heart of the consumer welfare argument. If a company is successful, then by definition people must be buying its stuff. On this basis, bigness is simply unassailable anymore. That has broad societal implications that I suspect we're not taking seriously enough.

He seems to be arguing that we consider returning to a pure bigness standard without reference to consumer harm.  I am not sure that we ever followed such a standard, but certainly today the alternative to a consumer harm standard is not a bigness standard but a competitor harm standard.  Whether he knows it or now, this is essentially what Drum is advocating.  We see this in the article he quotes:

But while the F.T.C. said that Google’s actions might have hurt individual competitors, over all it found that the search engine helped consumers, as evidenced by Google users’ clicking on the products that Google highlighted and competing search engines’ adopting similar approaches.

I am not sure what Drum really wants, but the result of eliminating the consumer-harm standard would be an environment where every failed company can haul its more successful competitors in front of the government and then duke it out based on relative political pull rather than product quality.  It is pretty well understood out there that this anti-Google FTC claim was initiated and championed by Microsoft, certainly not among the powerless typically championed by progressives, and a company well known to have missed the boat on Internet search and which is apparently trying to do now through government fiat what it has not been able to do in the marketplace.  Microsoft learned this technique from Sun and Oracle, which took Microsoft to the FTC in the famous browser case where Microsoft faced years of anti-trust scrutiny for the crime of giving the public a free product.

Already, anti-trust law is an important tool of the corporate state, to allow politically powerful companies to squash competition from those who invested less money in their Washington office.  I am not a legal expert at all, but this consumer standard in anti-trust strikes me as a critical shield stopping a hell of a lot more abuse of anti-trust law.

By the way, there is a modern bigness problem with corporations that is very troubling -- we have made government tremendously powerful, giving it many tools to arbitrarily choose winners and losers without any reference to justice or rights.  As private entities get larger and richer, they are better able to access and wield this power in their own favor.  The libertarian solution is to reduce the government's power to pick winners and losers.  The progressive answer is to regulate business more with tools like anti-trust.

But the progressive solution has a built-in contradiction, which why Drum probably does not suggest a solution.  Because the very tools progressives suggest to regulate business typically become the tools with which politically connected corporations further tilt the game in their own favor.  Anti-trust is a great example.  We want to reduce the number of large companies with an eye to reducing corporatism and cronyism, but the very tool to do so -- anti-trust law -- has become one the corporate crony's best tools for stepping on competitors and insulating their own market positions.

And by the way, Rockefeller's Standard Oil did a HELL of a job for consumers.  It was nominally punished for what it might some day hypothetically do to consumers.

Here are the facts, via Reason

Standard Oil began in 1870, when kerosene cost 30 cents a gallon. By 1897, Rockefeller's scientists and managers had driven the price to under 6 cents per gallon, and many of his less-efficient competitors were out of business--including companies whose inferior grades of kerosene were prone to explosion and whose dangerous wares had depressed the demand for the product. Standard Oil did the same for petroleum: In a single decade, from 1880 to 1890, Rockefeller's consolidations helped drive petroleum prices down 61 percent while increasing output 393 percent.

By the way, Greenpeace should have a picture of John D. Rockefeller on the wall of every office.  Rockefeller, by driving down the cost of kerosene as an illuminant, did more than any other person in the history to save the whales.  By making kerosene cheap, people were willing to give up whale oil, dealing a mortal blow to the whaling industry (perhaps just in time for the Sperm Whale).

So Rockefeller grew because he had the lowest cost position in the industry, and was able to offer the lowest prices, and the country was hurt, how?  Sure, he drove competitors out of business at times through harsh tactics, but most of these folks were big boys who knew the rules and engaged in most of the same practices.  In fact, Rockefeller seldom ran competitors entirely out of business but rather put pressure on them until they sold out, usually on very fair terms.

From "Money, Greed, and Risk," author Charles Morris

An extraordinary combination of piratical entrepreneur and steady-handed corporate administrator, he achieved dominance primarily by being more farsighted, more technologically advanced, more ruthlessly focused on costs and efficiency than anyone else. When Rockefeller was consolidating the refining industry in the 1870s, for example, he simply invited competitors to his office and showed them his books. One refiner - who quickly sold out on favorable terms - was 'astounded' that Rockefeller could profitably sell kerosene at a price far below his own cost of production.